GBP/USD eyes UK trade balance report

GBP/USD pair dipped to a low of 1.4374 before ending the day at 1.4404 levels. Upticks consistently ran into offers, especially around 1.4444-1.4460 levels. The pair trades around 1.44 handle today as investors await UK trade balance release.

Britain’s deteriorating trade position

Consider the following stats –

For 2015, the current account deficit hit GBP 96.2 billion or 5.2% of GDP, the widest since records began in 1948.

In Q4 2015, the deficit rose to GBP 32.7 billion in the fourth quarter, equivalent to 7% of GDP – highest since quarterly records began in 1955.

Clearly, ballooning current account deficit is a major issue, which according to Bank of England could worsen in case Britons vote in favor of Brexit at June 23 referendum.

The data for March due today is likely to show the deficit remained more or less unchanged from Feb figure. We would also get an insight into net first quarter figure. Given the sequential drop in the exports and anemic global demand, there is little reason for a sharp contraction in trade deficit in March. Consequently, we might be in for another record high quarterly deficit figure.

UK’s trade deficit figures usually get a lukewarm response from the markets. Nevertheless, worsening of trade deficit numbers may restrict a rebound in the pair. On the other hand, a positive surprise would be good news for Sterling.

Technicals – Daily Chart

Resistance – 1.4413, 1.4459, 1.4514

Support – 1.4366, 1.4345-1.4330, 1.4315-1.4302

Cable’s failure to sustain above 1.4413 (38.2% of 1.3835-1.4770) in Asia following a daily closing below the same yesterday could result in a drop to its 100-SMA at 1.4366 levels.

Further losses towards 1.4345 (rising trend line support)-1.4315 cannot be ruled out if UK data surprises on the negative side.

Caution – A rebound from support levels mentioned above followed by a break above 1.4413 could signal a short-term reversal. In such a case, 1.4444 could be breached and the spot may test supply around 1.45 – 1.4549 levels.